Forex The basics

What is forex? The exchange of foreign currency is termed as foreign exchange business or forex.

The primary requirement for conducting exim business is having proficiency in forex activities. It consists of two currencies where currency A is traded for currency B. The rate at which a currency would be traded against the other is determined by a combination of various complex factors:

  • Convertibility of currency
  • Demand and supply of a particular currency
  • Government policies with regard to appreciation/depreciation of currency
  • The balance of payments – deficit or surplus
  • The foreign exchange reserves with the National Treasurer
  • The Gold holding of a state
  • The volume of international trade conducted
  • The degree of alignment of the state’s economy with the rest of the world
  • The degree of dependence on other economies for essential services and commodities
  • The stability of the national government(s)

There is no single determinant of the forex rates. They are vibrant of the happenings around the economy and the world. The popularity and acceptance of a currency is also an indicator of the faith of the people in that currency value.